Collision of Culture and Mind-sets
The study of cognitive psychology as part of behavioural approaches to a wide variety of business and social issues is now mainstream. Behavioural economics has been brought to popular attention via books such as Thinking Fast and Slow and arguably more accessibly, Predictably Irrational: The Hidden Forces that Shape our Decisions. Such works have provided insights about the limits of rationality in understanding investor behaviour and exploiting stock-pricing anomalies. Policy makers use behavioural principles in health and well being, dietary interventions, energy efficiency, controlling food waste, education, voting behaviour and charitable giving.
The flip-side of these positive behaviour change interventions are the cognitive biases—systematic tendencies to deviate from rational calculations—also revealed by behavioural economics. These impact the quality of decisions at all levels and settings, and simple awareness of the range of heuristics or “rules of thumb” doesn’t seem to limit their impacts.
Perhaps it is because decisions to change and account for systematic errors are themselves subject to bias. Whilst it is reasonable and quite straightforward to use psychology to exploit the biases residing in others, it is not so easy for leaders to recognise their own biases. Indeed the very act of bias “proofing” decision requires a leader or manager to recognise a key action-orientated bias in themselves, that of overconfidence.
One of the beauties of cognitive psychology is its universal nature. Cognition, being a common human trait, would imply that the research by Kahneman & Tversky in their 1974 foundational academic work—Judgment under Uncertainty: Heuristics and Biases—would apply across all cultures, subcultures and socio-economic groups. Through our experiences it appears there is a distribution of biases across these groups. Attenuation and amplification of certain biases is evident, but all are present to some degree. The predominant biases in Asia business are illustrated in Figure 1.
These biases fall into two categories, Stability and Social biases. Both are endemic in executive decision-making in Asia. They are deep routed in traditional processes and rituals around meetings, discussions and hierarchical organisational structures. The root causes of such biases point to potential solutions, but also the difficulties in making concrete changes.
Stability biases make managers less prone to depart from the status quo than they should be. This category includes anchoring—the powerful impact an initial idea or number has on the subsequent strategic conversation, loss aversion—the tendency to feel losses more acutely than equivalent gains—and the sunk-cost fallacy, which can lead companies to hold on to businesses they should divest. Social biases result from strong cultural influences on corporate and institutional behaviour, the importance of in-group membership and consensus-based decision-making, centralised leadership and tight adherence to rigid policies and procedures. It is clear that in many group or committee-based decision settings, the views of the leader, the ultimate decision-maker, are well known. Conformity is a powerful mediator and dissent is rarely expressed. All of these preferences for harmony over conflict, embodied in “Group think” and “Sunflower management” make recognition and discussion of such biases extremely difficult. Profound cultural change is simply not an option.
In our practices we continually reflect on the difficulties in Asia with dealing with uncertainty, either communicating or coping strategies are challenging and tend towards actions that preserve the status quo. Uncertainty also leads to other biases, overconfidence (re-assurance) and excessive optimism, usually in the face of crisis.
Stability biases with uncertainty at their core can leverage social biases (Groupthink) to inspire change through historical perspective. Group reviews of decisions over time, with focus on growth opportunities in micro markets as opposed to business units as a whole can reveal interim in investment to growth that are hidden in plain sight. See “Is your growth strategy flying blind” for more.
Addressing the ingrained social biases in Asia won’t happen through western ideals of “improving debate” or parachuting processes of decision-making into meeting rooms across the region. Ultimately any step change to address social biases will be deeply rooted in a culture of trust. Only when leaders recognise the value of genuine transformational leadership, role modelling and changes to group dynamics will mitigation of social biases even be addressed. Exercises to emphasise the critical nature of trust in leadership and management practice have been shown to be effective in recognising sources of bias and improving long-term decisions outcomes, particularly around key decisions. Once again, the very process of recognising the problem, and a decision to act requires affirmative action, which is in itself subject to the very biases it is trying to address. Trust is a heuristic, one of simplification. To address problems of bias may require investment in this commodity, and peripheral actions or interventions in this area may address difficult, ingrained decision-making errors elsewhere.